All Forum Posts by: Kenny Dahill

Hi @Nikolay Voronovich, Baltimore has a lot of regulations and annual inspections.  From my understanding, more than most other markets.

Having a property manager who not only knows the regulations and implementing them, but keeps up with the latest laws would be beneficial.  

There are a lot of Section 8  rentals in Baltimore too.  If yours is, having a PM would be a valuable consideration.

Hi @Andy Morris.  It depends what you are trying to do. 

If you're buying single-family rental (SFR), don't even worry about it. Stick to ROI. Don't over complicate this.

CapRates are mostly used in commercial real estate (CRE). Unlike SFR, commercial assets are valued based off of your net operating income (NOI) and Cap Rate.

• How to Value CRE:  NOI / CapRate. For example, $100,000 / 10% = $1,000,000 valuation.
• Why We Value CapRate:  CapRate is the negotiation term because your NOI is what it is. Unlike residential, commercial assets aren't based off of comparable prices. 2 office buildings next to one another can have dramatically different valuations because one is twice as big. However, if they're similar in class of tenants, location, and rent rates then you can use the CapRate as an essential "comparable".
• Assets Types:  Every class of assets have different Caps.  You might see office at 10%, mutlifamily 8% and industrial at 6% all in the same metropolitan area.  So you can't compare Cap Rates across asset classes.
• Regional:  Real estate is very local based, you need to know your local CapRate comps. As a former CRE developer for industrial assets, you would see rates varies across markets: LA 3-4%, Inland Empire 5-6%, Phoenix 7-8%, Bay Area 4-5%.

To answer your question, do you want a high or low cap?  

• Cap Rates are opposite mindset of traditional investments:  Buy high, sell low!

Consider this scenario: you buy an investment that has a NOI of $50,000 at a 10% cap. $500,000 purchase. Then you decide to sell it.

• Rents remained at $50k NOI, sell at a 9% cap: $555,555 valuation
  
• Raised rents to $100k NOI, sell at same 10% cap:  $1,000,000 valuation.
• Raised rents to $100k NOI, sell at a 9% cap:    $1,111,111 valuation

Hi @Diane Huetter, I am not a legal expert so you will want to do your own due diligence.

However, often in state regulations they will list the notice procedure.  Most states are 24-48 hours notice, unless it is deemed an emergency.  I think we all agree paint is not an emergency.

I believe in creating an incentive for folks.  Tell them if you perform the punch list now that they will get their security deposits back sooner.  If not, you can wait the entire legal duration to refund their deposit.

Hi @Charlene Isoh, Cleveland is a dynamic market as you're aware.  Property management firms in Cleveland typically have their criteria for asset types and locations.

What parts of Cleveland is this property located?

What type of asset is it: SFR or MF?

Addressing those two questions can eliminate management firms and help save you time with recommendations for PM's who will manage based on your responses.

Also, anything specialize that you are looking for?  Coordinating renovations, Section 8, etc. will help shortlist your possible PM's.

@David Kuhlke, no problem.

I will state that the "buy" should incorporate everything net in order for you to start renting a property.

Buying a turnkey property that is ready to rent will obviously cost you a little more, however there are benefits to consider.

• Rent Ready:  Your money goes into play immediately!  Within 30-days you start to earn income.
• Lower Burden of Risk:  Investing in real estate is often mitigating risk.  Buying a turnkey property can significantly lower your risk. 
  • Contractors:  You will not deal with contractors who miss dates or steal from you
  • Timing:  What if you miss the window of opportunity for highest and best renters?  Is pushing back 3 months to rehab worth the potential lost revenue?
• Stress Factor:  Dealing with contractors can be extremely stressful.  And that's when they're local!  Being out of state will make it more difficult.  Purchasing a turnkey completed or having them manage could be money well spent if you want to avoid stress.

End of the day you need to perform your own due diligence.  Then go off your gut.  Going with a trusted-and-well-vetted turnkey provider may or may not be your best opportunity.  However, make sure you consider all the factors and understand that "buy" is not necessarily the one-transaction.  The 'buy' may be multiple components put together, which I would consider everything required to earn a rental income.

Best of luck!

Thanks @Joe Splitrock for the corrections.  Other have indicated the Cozy is free with ACH, accelerated payments cost you extra as you indicated.

Regarding Venmo, majority of my renters use that and I don't pay any fees.

Hi @Meridith Om, sorry to hear about the current struggle.

Let's start off with some obvious questions:

• Advertising The Listing:  There are several options out there that you will want to consider.  Each have their own strengths and weakness:
  • Zillow: Free and popular.  This is what I always use
  • Craigslist: Oldie and it can get strange reactions.  But I have had success there.
  • MLS:  Access to realtors who might be helping tenants of their own.  Downside, your PM will need to split a commission with them.
  • Realtor.com:  Another website, I believe it cost money.
  • Local employers!  Put up a flier or call the business development person at larger businesses nearby.
• PM Responsibilities:  Finding a tenant should be 100% the responsibility of your property manager.  I always suggest you give them the flexibility to do their job properly.  At some point, it is your investment and as the CEO you must get involved.  What's done is done, now it's about taking action to correct the issue.  You need to create listings and then send them to the PM.
• Incentives:  How much longer will this property remain vacant?  What about if they stay for 1-year and you have to lease up in the winter again, which people have already admitted to being difficult.  Consider these:
  • Move-in Special:  Provide them a discount on the first months rent if they move in by a certain date.  NOTE:  Their security deposit still needs to be the non-discounted rent total!
  • 18-24mo Lease:  You're having a difficult time with this vacancy, what will happen next time?  Vacancy is our biggest threat as landlords for not making money.  Offer tenants a discount of $25-50 if they execute a 2-year lease.  That's 0% vacancy next year, you're almost at 25% vacancy this year.  At least that'll blend to 12.5% over 2 years.
• Referral Fee: Talk to your existing tenants and tell them you'll reduce rent if they know somebody who will move in.  You'll have to do your own screening.

Hiring a property manager should reduce stresses in your life.  And for the most part, the good ones do.  Maybe this is a bad PM or it's just tough conditions right now, it happens.  What's important is communication between you two.  Property managers hate to be hounded but at some point they should expect it; i.e. 3 month vacant unit.

Here are my suggestions for you and your property manager:

• Understand Your Management Agreement:  Read the agreement and confirm what their requirements are for unit turnovers.  Doubtful, but there might be a clause regarding units that sit vacant for a limit of time.  Are they performing all their responsibilities and duties they agreed to?
• Provide Proof:  If you are lacking in showings, ask them to provide their advertisements and dates they went up.  Ask to receive every 'interested' email so you can follow up with them.  You want to make sure they have truly done everything possible.
  
• Hire Outside Help:  This is an extended vacancy, hiring help could help resolve this issue.  But who will pay?  Your PM will argue they've done everything they can, again confirm with PMA their responsibilities.  While that may be true, they have a fiduciary responsibility to you.  The tough part is they will want a portion of the placement fee and not pay commission, that's breaching their fiduciary responsibility.  You will need to negotiate who will pay what and/or earn what.  Your goal is minimizing your losses, not minimizing their losses.

I wish you the best of luck, it's an unfortunate situation that every investor fears!

Hi @Sara Taslitt , I wrote this on your other post but it applies.

There are two trains of thought when it comes to tenant payments:

• My Way:  You have a defined method and that is all you will accept.  Important to tell them during the application process.
• Doesn't Matter:  You only care about collecting money!  As long as they pay you on-time and you don't have to hassle them, any method the tenant prefers.

My personal preference is it doesn't matter, I give them 2-3 options that works best for them.  I want to make their life easier so I get paid!

Here are several methods to get paid, you'll have to judge based on the class of tenants you work with:

• Bank deposit:  Provide them the slips and forms so there are no excuses.  Instant
• Cozy:  Website based and specifically for tenant payments.  There is a charge per transaction. I believe a 7-10 day wait period to transfer to bank
• Zelle:  This works with large banks (Chase, BofA, Wells Fargo).  I believe instant or 1-2 days
• Venmo:  Phone app that is popular with younger crowds.  Most of my tenants prefer this.  2-3 day period.
• PayPal:  Website and phone app.  There is a charge per transaction.  2-3 day period.

There is also a Walmart option, however I don't know too much about that.

Hi @Sara Taslitt, good question.  While specific, there's a generic response.

To answer your question, there are plenty of lease / rental agreement templates that you can access online.  You don't need a lawyer to write up a lease.

If you are starting out, it is important to have all your systems in place:

• Lease / Agreements:  You can search online or there are sites you can buy legal documents specific to your property location.  Here are some online places to buy state-specific legal documents:
  • LegalNature
  • Law Depot
  • US Legal Forms
• Tenant Application:  You will want a standard application form that tenants must submit.  Then you can determine if you want to charge an application fee.  There are sites like RentPrep that allow you to do background checks as well.
• Tenant Payment:  How will you allow the tenants to pay you?  There are 2 approaches: my way or their way.  Depending on the class of tenants you deal with, you can be more specific in the payment methods.  If it is a lower class tenant, I suggest you make their life easier so there are less excuses.  Here are a few options:
  • Cozy
  • Venmo
  • Zelle - Works with large banks
  • PayPal

The benefit to having a lawyer write up your lease is if you have unique situations.  For example, the rent includes commercial space or a workshop for their business.  Property management firms will have their lawyers write up their lease template, but they also deal with thousands of tenants over the years.

Assuming this is a normal rental, you should be covered by going to an online legal store.  It might cost you $50-75, but that's going to be cheaper than a lawyer!

Congrats on the first rental and best of luck moving forward!

Hi @Bob Malecki, what's the extent of scope and services you need from your property management company regarding the rehab?

I would imagine any good property manager can assist with that, if they don't have an internal rehab team they should know and partner with contractors.